Wednesday, 29 December 2010

Total Reward – What should be considered before addressing the issue

When dealing with
reward issues it should be invariably taken heed of the circumstance that in his
two-factor model Frederick Herzberg (1957) considered pay, or in general recognition
achieved by means of financial rewards, as a “maintenance” or “hygiene” factor.

The use of the term “hygiene” is not arbitrary,
it has indeed a medical correlation; hygiene factors are those elements related
to a job which whether removed or improved do not produce a healthier state,
but just help prevent illness. This type of factors is thus more likely to prevent
deterioration and maintain the status quo, rather than lead to effective improvements.

According to the findings
of the thorough and still incredibly relevant to modern times study conducted by
Herzberg, hygiene factors are dissatisfiers, that is, factors which can
contribute to reduce and in some cases eliminate dissatisfaction, but unable to
increase employee satisfaction. By means of these individuals reach a “neutral
point”, somewhat of an in the middle stage, between satisfaction and
dissatisfaction.

Herzberg’s investigation
showed that even when pay was positively mentioned by employees it was always
linked to achievement, success, growth and a job well done and not simply as cash
per se. Herzberg’s study and other investigations conducted by different Authors
at different times show that salary increases have motivational effects lasting
just for approximately a three-week-period time. Notwithstanding, Herzberg by
reason of the counterproductive effects these can produce on individual motivation
did not consider financial rewards unimportant.

Whether pay and financial rewards in general
should be used as the only levers to induce individual motivation and favour organizational
growth, nonetheless, employers would be forced to constantly increase employee
pay in order to sustain their motivation. After a while, irrespective of the circumstance
it may be a matter of three weeks, three months or a year in that the length of
this period of time can vary according to the different circumstances,
employees would take for granted that whether the employer wants to keep their
motivation alive this has to further increase the worth of its value
proposition. To attain the objective, the amount of salaries, bonuses, golden
handcuffs and any type of cash supplement would be made increasingly appetising
and larger in value; a real bottomless pit and a move which would definitely prompt
the employer to sooner or later call in the receivers.

Cappelli (2000) suggests
that although paying staff competitive rates can help organizations to attract
and retain talented individuals, business have clearly to impose a limit to the
extent they can compete in the “pull of the market.” He also claims that
although golden handcuffs and loyalty bonuses at large are used by organizations
to retain high-flyers, their effects are unlikely to be long-lasting; whether and
once individuals have decided to leave these will.

Findings of many
recent surveys have supported these conclusions. An investigation carried out
by Development Dimensions International (2004), based on a panel composed of
1,000 staff from companies employing more than 500 workers, for instance, revealed
that many employees were bored, lacked commitment and were actively seeking for
a new job. What more relevant and interesting, amongst the reasons cited by
respondents for leaving their job pay actually finished in fifth place. The
main reasons, as emerged from the investigation, for individuals aiming at
changing job were:

- The lack of a
motivating and compelling job;

- The absence of
opportunity for advancement;

- The lack of career
prospects;

- The lack of a challenging
work;

- The desire to
work within a more exciting environment;

- The possibility
to perform a more varied work.

A more recent survey
carried out by the National Training Awards (2010) revealed that when looking
for a new job 76 percent of employees consider salary as the most attractive
feature, whereas just a meagre 32 percent reported to be motivated by cash to
perform well. This is to some extent bolstering the conclusions reached by
Herzberg and other Authors about the effects, just limited to the short run, which
cash and pay increases can produce upon motivation.

Some particular types
of events occurring in real life can help to further support this idea. When a
person inherits a large sum of money or wins a great lottery prize, this
habitually continues to work or decides to start-up his/her own business. His/her
motivators are clearly achievement, responsibility and growth. What an
individual invariably aims at achieving also under such circumstances is self-fulfilment;
his/her main motivations are provided by his/her work rather than by cash,
which could thus be considered as a means to an end and not the end itself. It
is indeed very likely that after a while just spending the cash won in the
lottery or received in the form of a legacy will prove to be boring and not that
exciting for many individuals.

Money is clearly an
important personal driver and is indeed necessary to have a decent and comfortable
lifestyle, but once this objective is attained the motivating power of cash is destined
to inevitably wane.

It might be
interesting to point out that, conversely from what claimed by Herzberg, nearly
a century ago Frederick Taylor (1917) had supported a strong transactional
theory about pay contending that people only work for money. In contrast, the
investigations conducted by Mary Parker Follet (1926) and Elton Mayo (1949), which
concluded that people are mostly and mainly motivated by the “social factor”, come
to similar conclusions to those reached by Herzberg.

Herzberg’s studies were
not indeed limited to the acknowledgement of financial rewards as hygiene
factors; the two-factor-model-related investigation also allowed Herzberg to identify
what individuals truly regard as motivators, to wit: the work itself,
recognition, responsibility, advancement in the sense of growth and
achievement.

Herzberg’s contribution
to the investigation of the factors genuinely making an impact on motivation, with
particular reference to the importance of intrinsic motivators, is particularly
valuable as well as is his contribution to the work enrichment movement. The
Author considered the role played by the intrinsic factors of paramount
importance and suggested that a job holder satisfaction can be enhanced by:

- Job enlargement -
horizontal growth,

- Job enrichment -
vertical growth,

- Job rotation.

Herzberg also averred
that managers should invariably treat their staff fairly in that employees tend
to never forget the effects produced by bias and injustice and habitually develop,
sometimes inadvertently, a “revenge psychology”, which cannot really be regarded
as the best lever to engage and motivate staff. The bonuses, benefits and salary
increases paid by an employer to individuals could hardly enable this to
compensate (here literally) the behaviour of a manager treating his/her reports
unfairly.

What has all of
that to do with total reward? It could be actually barely believed that the developers
of the total reward concept were unaware of or ignored Herzberg’s studies and investigations;
it is indeed more likely that the total reward idea was developed as somewhat
of the natural evolution of Herzberg’s study.

There are indeed very
good reasons for organizations constantly striving to motivate and engage staff.
Fundamentally, motivation is aimed at improving employee performance, which in
turn should enable businesses to:

- Improve staff productivity,

- Enhance its
competitive edge,

- Reduce the
personnel budget,

- Increase profit.

Pay, financial rewards
at large and many types of perks, which are nowadays no longer perceived by
staff as additional benefits, but rather as something the employer has to provide
them as a matter of course, are no more effectually helping employers to retain
and motivate high-fliers in particular and staff in general.

A good deal of academic
studies such as those carried out by Maslow (1954) and McGregor (1960) have
provided evidence of the fact that intrinsic factors have a positive impact on
motivation. Herzberg’s study went towards this direction too and, some criticisms
notwithstanding, his conclusions, which also support the central belief of the
dignity of labour and Protestant ethic according to which “work is good in
itself”, have been and are still considered extremely important.

Total reward is
basically aiming at providing sound solutions helping organizations to attract,
retain and motivate individuals by means of a wider and more effective range of
options. The concept is underpinned by and built on the synergic multiplicative
effect typical of bundling, rather than only on the effects yielded by the financial
means taken in isolation, which on their own have proved to be unsuccessful. That
is why Herzberg’s study on intrinsic factors is still extremely relevant and important.
Total reward essentially represents the sum of transactional rewards, which include
financial rewards, and relational rewards, which are formed by
non-financial/intrinsic rewards.

Despite their unquestionable validity, Herzberg’s
theories are not completely immune to criticism so that his studies have been subject
to different types of attacks over the years. One of the most interesting and
appreciable criticism to Herzberg’s study is that it made no attempt to ascertain
the existence of any linkages between employee satisfaction and performance. Even
recognizing that the assumption that such a link might actually exist cannot be
considered as nonsensical, the establishment of a causal effect relationship between
satisfaction and performance is still today broadly regarded as questionable
for lack of scientific evidence (Employees engagement and satisfaction. Do you take appropriate actions according to staff feedback?).

An additional
interesting criticism made to Herzberg theories relates to the circumstance
that staff diversity makes it difficult for employers to exactly determine what
satisfies and dissatisfies different individuals. Not everybody, for instance, may
want his job to be enriched. This is absolutely correct, but to some degree
this remark should not be actually seen as a criticism or as a weakening
statement of the Herzberg’s model, at least when applied to the total reward concept.
This criticism could have been comprehensible only whether with reward the
one-size-fits-all tenet could have been effectually applied, whereas it clearly
does not and not just by reason of individual diversity, but also because it
would be wrong assuming that the same individual may have the same wants at
different times.

It is hence correct
to back the idea that individuals wish different things and that employers need
to know what their employees are expected to receive in order to properly
reward them, but employee tastes are different not only because individuals are
different one another, but also because people wants, attitudes and tastes are
subject to change and vary over time. These changes most likely arise over the mid-
to long-term, but it cannot be taken as axiomatic that employees, who are currently
glad to receive a determined type of reward, will still be glad to receive the
same type of reward in the near future.

The mix of rewards
presently satisfying individuals cannot be considered as static, but rather as a
dynamic combination of variables influenced by the ever-changing-tastes phenomenon
and the “diversity” factor. Total reward programmes need to be hence adapted and
tailored to each organization employee population. Whether total reward should
be a meal, we would say that its recipe should be adapted to each individual
according to his/her tastes, or rather, needs.

Once a thorough and
overarching value proposition has been developed, there could be individuals preferring
a reward package whose composition is mainly characterised by the financial
element, others whose package is predominantly formed by “intrinsic factors”
and others whose bundle is nearly equally balanced.

Reward is not an
exclusively internal organizational issue, the changes and developments occurring
in the external environment in fact more often than not come to play and play a
very important role.

Herzberg, Maslow, McGregor and many other Authors
did start the job and yielded many significant results. These studies clearly constitute
solid and valid basis for further investigations which will arguably never come
to an end; not by reason of what concerns the identification of the foundation
and fundamentals of the total reward concept and idea, but rather as for what regards
its composition, process and the way it has to be associated with individual performance.

Longo, R., (2010), Total Reward - What should be considered before addressing the issue, HR Professionals, [online].

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an extended version of this article and much, much more click here